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Compliance Alert; May 2013

Consumer Financial Protection Bureau Expects Further Action (06/00/13)

Home Mortgage Disclosure Act (Reg C)

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to report information concerning credit applications made by women- or minority owned businesses and small businesses. The amendments made by the Dodd-Frank Act require that certain data be collected and maintained under ECOA, including the number and date the application was received, the type and purpose of loan applied for, the amount of credit applied for and approved, the type of action taken with regard to each application and the date of such action, the census tract of the principal place of business, the gross annual revenue, and the race, sex, and ethnicity of the principal owners of the business. The CFPB expects to begin developing proposed regulations concerning the data to be collected and appropriate procedures, information safeguards, and privacy protections for information-gathering under this section.

Fair Lending for Business Which will be new guidelines for businesses, currently the only requirements for business loans under Regulation B is for Joint Applicants.

The Bureau of Consumer Financial Protection (Bureau) issues this final rule to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act’s amendments to the Truth in Lending Act and the Real Estate Settlement Procedures Act. The final rule amends Regulation Z (Truth in Lending) by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revising and expanding the tests for coverage under HOEPA, and imposing additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement. Except as otherwise provided in this section, not later than three business days after a lender, mortgage broker, or dealer receives an application, or information sufficient to complete an application, the lender must provide the loan applicant with a clear and conspicuous written list of homeownership counseling organizations that provide relevant counseling services in the loan applicant’s location. The list of homeownership counseling organizations distributed to each loan applicant under this section shall be obtained no earlier than 30 days prior to the time when the list is provided to the loan applicant. The rule is effective January 10, 2014.

Qualified Mortgages (01/10/14)

The definition of a Qualified Mortgage (QM) that is a covered transaction includes the following:

  • That provides for regular periodic payments that are substantially equal except for adjustable-rate mortgage.
  •  Do not result in an increase of the principal balance.
  • Do not allow the consumer to defer repayment of principal.
  • Do not result in a balloon payment.
  • For which the loan term does not exceed 30 years.
  •  For which the total points and fees payable in connection with the loan, do not exceed the amounts.

Institutions will be required to ensure that the borrower passed the ability-to-repay requirements regarding the limits on points and fees calculation will by the same as the requirements of Home Owner Equity Protection Act Section 35 of 12 CFR 1026 Fees 3% of loan amount of loans over $100,000; for loan amounts greater than $60, but less than $100,000 adjusted for inflation: $3,000 and 5% for loans greater than or equal to $20,000 but less than $60,000.

Retention period for the institution’s proof of the borrower’s ability-to-repay is 3 years but we recommend it is retained for life of loan.

High Cost Mortgages 12 CFR 1026.32 (HOEPA) (Start Date 06/01/13)

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amends the Truth in Lending Act by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protection Act of 1994 (HOEPA), by revising and expanding the triggers for coverage under HOEPA, and by imposing additional restrictions on HOEPA mortgage loans, including a pre-loan counseling requirement. The Dodd-Frank Act also amends the Truth in Lending Act and the Real Estate Settlement Procedures Act by imposing certain other requirements related to homeownership counseling. The Bureau of Consumer Financial Protection (Bureau) is proposing to amend Regulation Z (Truth in Lending) and Regulation X (Real Estate Settlement Procedures Act) to implement the Dodd-Frank Act’s amendments to the Truth in Lending Act and the Real Estate Settlement Procedures Act.

The financial institution may not make this type of loan unless they receive a written certificate of completion of counseling. Also, the institution’s points and fees determine the HOEPA status including prepayment penalty and 5 year or less balloon mortgage balances.

Higher Priced Mortgage Loans (HPML)

The Bureau of Consumer Financial Protection (Bureau) is publishing a final rule that amends Regulation Z (Truth in Lending) to implement certain amendments to the Truth in Lending Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Regulation Z currently requires creditors to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling.

The rule implements statutory changes made by the Dodd-Frank Act that lengthen the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained.

On March 12, effective June 1, 2013 the CFPB exempted certain financial institutions from the requirements of escrowing for taxes and insurance on Higher Priced Mortgage Loans (HPMLs). That rule created a new exemption for small creditors that operate predominantly in rural or underserved areas. Such a creditor is not required to establish an escrow account for taxes and insurance for an HPML if (i) during the preceding calendar year, it extended more than 50 percent of its total covered transactions on properties that are located in designated rural or underserved counties; (ii) the creditor and its affiliates together originated 500 or fewer covered transactions during the preceding calendar year; (iii) as of the end of the preceding calendar year. The rule also exempts certain transactions from the statute’s escrow requirement. The primary exemption applies to mortgage transactions extended by creditors that operate predominantly in rural or underserved areas (posted by the CFPB), originate a limited number of first-lien covered transactions (500 covered loans) during the previous year, have assets below a certain threshold $2,000,000,000 and do not maintain escrow accounts on mortgage obligations they currently service. Hopefully, if you’re County is considered a rural or underserved area (not sure for those of you that are a HMDA reporter), you should be exempt from escrow. Keep your fingers and toes crossed on this one, sounds too good to be true. If escrow is required, the one year period before cancellation consideration changes to 5 years before the borrower can request the escrow be cancelled.

The CFPB just recently issued a preliminary list of rural or underserved counties in Ohio as follows:

  • 39001 OH Adams County
  • 9065 OH Hardin County
  • 39067 OH Harrison County
  • 39069 OH Henry County
  • 39071 OH Highland County
  • 39073 OH Hocking County
  • 39075 OH Holmes County
  • 39079 OH Jackson County
  • 39105 OH Meigs County
  • 39107 OH Mercer County
  • 39111 OH Monroe County
  • 39115 OH Morgan County
  • 39121 OH Noble County
  • 39125 OH Paulding County
  • 39127 OH Perry County
  • 39131 OH Pike County 
  • 39137 OH Putnam County
  • 39163 OH Vinton County
  • 39171 OH Williams County
  • 39175 OH Wyandot County

If your County is not listed, then you are required to follow the new guidelines under Reg Z section 1024.32 for Higher Priced Mortgage Loans (HPML) regarding escrowing for Taxes, Hazard Insurance, and Flood Hazard Insurance.

Financing Flipped Homes

If the purpose of the loan is to purchase a flipped home (purchasing a home from a seller who bought the home less than six months before), and the amount paid is 10% more than the seller paid for the home if purchased within the past 90 days and 20% more if the seller bought the home in the past 91 to 180 days the institution is required to acquire a second appraisal from a different appraiser and the consumer cannot be charged for the second appraisal.